TOKYO, Japan: The International Monetary Fund has urged the Bank of Japan to continue raising interest rates, even as the conflict involving Iran introduces fresh uncertainty into the country's economic outlook.

The recommendation comes as markets increasingly expect the BOJ to move as early as April, driven by rising inflation linked to higher oil prices and increased import costs amid a weakening yen.

In a statement issued from Washington following its policy consultation with Japan, the IMF said economic growth may moderate in part due to the war, but pointed to steady wage gains as a factor supporting consumption.

"Risks to the outlook and inflation are broadly balanced," with inflation expected to converge to the BOJ's two percent target in 2027, the IMF said.

The IMF's executive board also noted Japan's resilience to global shocks and supported the central bank's gradual shift away from ultra-loose monetary policy.

"They noted that as underlying inflation converges toward the BOJ's target, gradual rate hikes toward neutral should continue" in a flexible, well-communicated, and data-dependent approach, the statement said.

"Directors stressed the importance of maintaining a flexible exchange rate as a credible shock absorber," it added.

The BOJ ended its long-running stimulus program in 2024 and has since raised interest rates multiple times, including in December, as it seeks to sustainably achieve its two percent inflation target.

Policymakers have indicated they are prepared to continue tightening, expecting inflation to reach the target sometime between the second half of fiscal 2026 and fiscal 2027. Japan's fiscal year begins in April.

While higher oil prices present a challenge for Japan's import-dependent economy, the BOJ has also highlighted its role in pushing inflation higher, alongside wage growth and broader price increases.

Market expectations have shifted accordingly, with traders pricing in roughly a 70 percent chance of a rate hike in April.

At the same time, the yen's continued weakness — nearing the key 160-per-dollar level — has raised concerns about potential intervention by Japanese authorities.

Finance Minister Satsuki Katayama issued a warning against excessive currency speculation, signaling readiness to act if needed.

"We're ready to take all available means that are legally feasible, be it conventional or non-conventional," she said during an online program on April 3.